RAPAPORT... Members of India’s gem and jewelry trade were relieved that the government didn’t further hike ‎the country’s gold import duty as part of the federal budget for fiscal 2013-14 but they were also disappointed that ‎many of their concerns were not addressed.‎

‎“The industry was in a panic due to the mood of the government in the past few weeks but ‎nothing wrong has come in the budget. There was no hike in the gold import duty and that was ‎a big relief,” Bachhraj Bamalwa, the chairman of the All India Gems and Jewellery Trade ‎Federation (GJF), told Rapaport News.‎

The industry was concerned that India may further increase the import duty on gold by ‎another 2 percent during the budget announcement on February 28. In January of this year, the ‎government increased the import duty on gold to 6 percent from 4 percent in an effort to ‎discourage demand for the yellow metal, which has contributed to the country's large current ‎account deficit.‎

Brokerage firm Religare stated that the government's decision not to levy any additional duty on gold in order to curb the current account deficit has ‎come as a pleasant surprise for the investor and consumer. Bamalwa added that ‎jewelry demand was weak in the past few days but is now expected to improve following the ‎budget decision. The upcoming wedding season is also likely to support demand, according to ‎trade officials.‎

However, Bamalwa noted that legacy issues remain, predominately ‎the prevention of money-laundering, and he stressed that the trade will continue to lobby the ‎government. GJF earlier this month stated that there was a lot of confusion throughout the ‎country about the amended Prevention of Money-Laundering Act that went into effect ‎February 15, 2013.‎

India’s Finance Minister, Palaniappan Chidambaram, in his budget speech on Thursday ‎proposed amending the baggage rules permitting eligible passengers to bring in jewelry, given ‎the sharp rise in gold prices. He proposed raising the duty-free limit to approximately $910 (INR 50,000) for male ‎passengers and $1,821 (INR 100,000) for female passengers, subject to the usual conditions. He also ‎proposed reducing the duty on preforms of precious and semi-precious stones from 10 ‎percent to 2 percent to encourage exports.‎

However, there was no mention of the diamond industry’s recommendation to introduce a ‎duty-free import quota for cut and polished diamonds. In its budget recommendation, the ‎Gem & Jewellery Export Promotion Council (GJEPC) urged the government to allow a duty-‎free polished import quota of 15 percent based on a company's previous year’s exports. The proposal came as trading activity has suffered since the government imposed a 2 ‎percent import duty on polished diamonds last January.‎

Chidambaram proposed levying a 4 percent excise duty on silver manufactured from smelting ‎zinc or lead, bringing it on par with the excise duty applicable to silver obtained from copper ore ‎and concentrates. Excise duty is a type of tax charged on locally produced goods. He also ‎proposed introducing Commodities Transaction Tax (CTT) on non-agricultural commodities ‎future contracts at 0.01 percent of the price of the trade.‎

‎"Overall it is a good budget with no major changes. Though CTT has been introduced I don't ‎think it will pose a major impact for the bullion industry,” said Prithviraj Kothari, the managing ‎director of RiddiSiddhi Bullions Ltd. “It’s good that the government has not imposed any ‎restrictions or any further duty hike on bullion. On the whole it has been a satisfactory ‎budget."‎

While presenting the budget, Chidambaram said that the country’s account deficit continues to be high ‎mainly because of “our excessive dependence on oil imports, the high volume of coal imports, ‎our passion for gold, and the slowdown in exports. This year, and perhaps next year too, we ‎have to find over $75 billion to finance the current account deficit.”‎

India’s deficit -- which occurs when a country’s total imports of goods, services and transfers are ‎greater than its exports -- hit a record high of 5.4 percent of its gross domestic product (GDP) in ‎the second fiscal quarter that ended in September 2012.‎

Chidambaram stated that households must be given incentives to save in financial ‎instruments rather than buy gold, and he proposed some financial instruments measures.‎

‎“The Finance Minister has correctly sought to divert some of the demand for gold from the ‎investment sector to financial instruments, like inflation-indexed bonds and others which will ‎not impact the more productive jewelry sector,” noted Mehul Choksi, the chairman and managing ‎director of Gitanjali Group.‎